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Impacts of Globalization on E-Commerce Use and Firm

Performance: A Cross-Country Investigation
a a a
Kenneth L. Kraemer , Jennifer Gibbs & Jason Dedrick
a
University of California, Irvine , Irvine, California, USA
Published online: 16 Aug 2006.

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ISSN: 0197-2243 print / 1087-6537 online
DOI: 10.1080/01972240500253350
Impacts of Globalization on E-Commerce Use and
Firm Performance: A Cross-Country Investigation
Kenneth L. Kraemer, Jennifer Gibbs, and Jason Dedrick
University of California, Irvine, Irvine, California, USA
Downloaded by [Swinburne University of Technology] at 20:06 06 January 2015
This article develops and tests a model examining the relation-
ship between firm globalization, scope of e-commerce use, and firm
performance, using data from a large-scale cross-country survey
of firms from three industries. We find that globalization leads to
both greater scope of e-commerce use and improved performance,
measured as efficiency, coordination, and market impacts. Scope
of e-commerce use also leads to greater firm performance of all
three types. Globalization has differential effects on B2B and B2C
e-commerce, however, such that highly global firms are more likely
to do B2B but less likely to do B2C. Our findings provide support
for Porter’s (1986) thesis that upstream business activities (namely,
B2B) are more global while downstream business activities (B2C)
are more local or multidomestic.
Keywords B2B, B2C, cross-country, e-commerce, globalization,
performance
Two powerful and sometimes controversial current
social and economic trends are globalization and the
widespread adoption of information and communication
technologies (ICTs). Many argue that these two trends are
closely associated, each driving the other forward, and
both being driven by other common forces, such as trade
liberalization, deregulation, migration, and the expansion
of capitalism and democracy (cf. Held et al., 1999). Pohjola
Received 6 February 2004; accepted 24 April 2005.
This research is part of the Globalization and E-Commerce Project
of the Center for Research on Information Technology and Organiza-
tions (CRITO) at the University of California, Irvine. The material is
based upon work supported by the National Science Foundation under
grant 0085852. Any opinions, findings, and conclusions or recommen-
dations expressed in this material are those of the author(s) and do not
necessarily reflect the views of the National Science Foundation.
Address correspondence to Kenneth L. Kraemer, Director, CRITO
and Professor, Management and Computer Science, University of
California, Irvine, 3200 Berkeley Place, Irvine, CA 92697-4650, USA.
E-mail: kkraemer@uci.edu
323
(2002) argues that the twin forces of globalization and the
ICT revolution are combining to create the so-called New
Economy, marked by higher rates of economic and pro-
ductivity growth. Technology is both driven by and a driver
of globalization, as both forces continually reinforce one
another (Bradley et al., 1993).
The process of globalization creates new challenges and
opportunities for firms. The opportunities include access
to new markets that were previously closed due to cost,
regulation, or indirect barriers, the ability to tap resources
such as labor, capital, and knowledge on a worldwide ba-
sis, and the opportunity to participate in global production
networks that are becoming prevalent in many industries
such as automotive, electronics, toys and textiles. Chal-
lenges come from foreign competitors entering firms’ do-
mestic markets, and from domestic competitors reducing
their costs through global sourcing, moving production
offshore, or gaining economies of scale by expanding into
new markets. Globalization challenges firms to become
more streamlined and efficient while simultaneously ex-
tending the geographic reach of their operations.
Responding to these opportunities and challenges in-
creasingly requires a fundamental restructuring of orga-
nizational strategy and processes (Bradley et al., 1993).
Due to increased competitive pressure, companies are us-
ing new technologies to extend their products and opera-
tions into the international marketplace (Snow et al., 1996).
They are also using these technologies to achieve new
innovative transnational organizational forms (Sturgeon,
2002).
The adoption and use of ICTs such as the Internet makes
it cheaper and easier for firms to extend their markets, man-
age their operations, and coordinate value chains across
borders (Cavusgil, 2002; Globerman et al., 2001; Williams
et al., 2001). As Alan Greenspan (2001) has said, “By
lowering the costs of transactions and information, tech-
nology has reduced market frictions and provided signifi-
cant impetus to the process of broadening world markets.”
ICT use fosters globalization by reducing transaction and
coordination costs and creating new and expanded markets
 324 K. L. KRAEMER ET AL.
with economies of scale (Mann et al., 2000; Steinfield &
Klein, 1999).
This article draws on theory on international manage-
ment and business strategy, impacts of information tech-
nology (IT), and diffusion theory to study the relationship
between globalization and the use of a particular set of
ICTs, namely, the Internet and electronic commerce, at
the firm level. The goal is to move beyond general ar-
guments about these “megatrends” and to look at their
actual dynamics in the operations of business establish-
ments. This requires thinking about the impacts of the two
separate but interrelated forces on individual firms. Much
of the literature on globalization and IT is lacking in em-
pirical analysis, but implicitly treats globalization as the
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dependent variable and examines the impacts of IT and the
Internet. While we acknowledge that there is a reciprocal
relationship between the two and do not make absolute
claims of causality, we reverse the typical hypothesized
ordering of effects and suggest that globalization occurs
first, which then creates the conditions for firms to adopt
and use e-commerce. We thus examine the impacts of glob-
alization on e-commerce and firm performance due to the
fact that the process of globalization has preceded Internet
and e-commerce adoption in time and it is still too early
to observe reciprocal effects.
Our study makes several notable contributions to the-
ory and empirical research. First, it empirically tests rela-
tionships between firm globalization, business-to-business
(B2B) and business-to-consumer (B2C) e-commerce, and
firm performance. Second, we find that a specific kind of
IT use —namely, B2C e-commerce—is actually more lo-
calized than B2B e-commerce. This latter finding, based
on primary data from a large-scale survey of more than
2100 firms in 10 countries across 3 industries (manufac-
turing, retail, finance), adds strong empirical support to
other recent research by Globerman et al. (2001), which is
limited to secondary data from one industry in one coun-
try. Third, it extends theoretical insights from the work
of Porter (1986) and Globerman et al. (2001) to differ-
entiate between high global and low global firms, which
have different patterns of e-commerce use and different
impacts.
CONCEPTUAL FRAMEWORK
Globalization has been defined as the growing intercon-
nectedness of the world through cross-border flows of in-
formation, capital, and people (cf. Held et al., 1999). While
globalization affects economic, social, cultural, political,
and other aspects of contemporary life, we focus here on
the economic aspects, using the firm as the unit of analy-
sis. Furthermore, since we are investigating impacts at the
firm level, we do not attempt to measure the process of
globalization directly but rather the degree to which com-
panies are globalized, in terms of the internationalization
of their operations, revenues, and the competitive pressure
they face. Taken together, these factors provide an indica-
tion of the level of company globalization. The objective
is to better understand the relationship of globalization to
e-commerce use by firms and its impacts on firm perfor-
mance. We define e-commerce broadly as the use of the
Internet to buy, sell, or support products and services.
The process of globalization is logically a powerful
driver for firms to adopt specific ICTs such as the Inter-
net and e-commerce as it usually has occurred earlier in
time. There is also empirical evidence supporting the re-
lationship. Macroeconomic evidence indicates that coun-
tries with more globally oriented economies (open in terms
of trade and foreign investment) have higher levels of ICT
investment (OECD, 1999). Since it is firms that are mak-
ing most of these investments, it is reasonable to expect
that more globally oriented firms would be more likely to
adopt technologies such as the Internet and e-commerce.
Research has confirmed that this is the case (Caselli &
Coleman, 2001; Shih et al., in press). Other empirical stud-
ies at the country level support the argument that the open-
ing of markets to trade and foreign investment leads do-
mestic firms to invest in ICTs to remain competitive (e.g.,
Dedrick et al., 2001). Thus, the process of globalization is
logically and empirically shown to be a driver for firms to
adopt specific ICTs such as the Internet and e-commerce.
The analysis in this article is based on a conceptual
framework that relates globalization, e-commerce use, and
the impacts of use on firm performance, as shown in
Figure 1. The framework posits that the degree to which a
firm is already globalized will influence the extent to which
it uses e-commerce and the types of e-commerce activi-
ties it undertakes. It also posits that the degree of glob-
alization will influence firm performance directly as well
as indirectly, by influencing the extent and nature of firm
e-commerce activities, which also influence impacts on
firm performance. The key variables in the framework are
defined below in the methodology section. We construct
hypotheses from the relationships among these variables
in the model, as represented by the arrows in Figure 1.
Globalization and E-Commerce Use
Firm globalization is heralded as a key driver of e-
commerce use (Steinfield & Klein, 1999). As explained
more fully later (Concepts and Measures), we conceptu-
alize two dimensions of e-commerce use: scope and type.
We define scope of use as the extent of e-commerce use
for different activities in the firm’s value chain from ad-
vertising and marketing to sales, procurement, service and
support, data exchange with customers and suppliers, and
integration of business processes. We define type of use
as business-to-business (B2B) and business-to-consumer
 GLOBALIZATION AND E-COMMERCE
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FIG. 1. Conceptual framework.
(B2C) in order to account for fundamental differences in
business and consumer transactions.
Globalization and Scope of Use. We expect that
highly global firms are likely to employ a greater scope of
e-commerce use than less global firms, for several reasons.
First, firms facing foreign competition are under greater
pressure to adopt technologies such as e-commerce that
enable them to protect or expand market share and operate
more efficiently. Competitive pressure has been identified
through several studies as an important determinant of the
scope of IT use, whether the extent of electronic document
interchange (EDI) diffusion (Banerjee & Golhar, 1993;
Ramamurthy et al., 1999; Webster, 1995), adoption of IT
innovations (Gatignon & Robertson, 1989; Grover, 1993),
or degree of computerization (Dasgupta et al., 1999). It
has also been found to be a significant determinant of the
scope of e-commerce use specifically (Zhu et al., 2002).
Second, firms doing business outside their own country
may be more motivated to lower their transaction and coor-
dination costs by using information technology to a greater
extent (Malone et al., 1987). We would expect that this is
true also in the specific case of Internet-based e-commerce.
Using the Internet for more internal transactions and co-
ordination can save time and money on delivery of goods
by using rich information flows to simplify, streamline,
or substitute for the flows of physical goods in the sup-
ply chain (Kraemer & Dedrick, 2002; Sturgeon, 2002).
In addition, firms that buy and sell in international mar-
kets are under pressure from trading partners to adopt and
utilize e-commerce for external transactions (especially
B2B) to reduce transaction and coordination costs with
other members of the value chain. This is especially true
in the case of global production networks and commodity
chains dominated by multinational corporations (MNCs)
that may require partners to use e-commerce in order to
325
do business with the MNC (Chen, 2002; Gereffi, 2001).
It is equally true of Dell or Wal-Mart, for example. These
considerations lead to our first hypothesis.
H1. Highly global firms will have a greater overall scope
of e-commerce use.
Globalization and Type of Use. There is a theoret-
ical basis in the business strategy literature for expect-
ing that some industries and business activities will tend
toward global convergence while others will be marked
by local divergence. Porter (1986) distinguishes between
global industries, in which firms gain competitive advan-
tage by integrating their activities worldwide, and multido-
mestic industries, in which competition occurs indepen-
dently within each country. Further, he divides the value
chain into upstream and downstream business activities.
Upstream activities such as inbound logistics and opera-
tions are not dependent on location, and can be organized
globally to achieve economies of scale. On the other hand,
downstream activities such as marketing, sales, and cus-
tomer service are location dependent and must be orga-
nized on a multidomestic basis.
Globerman et al. (2001) apply Porter’s theories to
e-commerce specifically. They contend that the impacts of
e-commerce differ across various stages of an industry’s
value chain, and that purchase of business inputs (B2B)
is becoming globalized while purchase of end services
by consumers (B2C) remains localized. Although their
analysis is limited to secondary data on the retail broker-
age industry, they conclude that retail (B2C) e-commerce
is relatively unaffected by globalization and is character-
ized by multidomestic competition due to the heterogene-
ity of consumers and different national regulatory sys-
tems. By contrast, they find that e-commerce for wholesale
brokerage activity (B2B) is more globalized. As a result,
they argue that e-commerce is not inherently a globalizing
 326 K. L. KRAEMER ET AL.
force, but one that can actually enhance local competitive
advantage.
Steinfield and Klein (1999) argue similarly that rather
than fostering seamless global markets equally open to all
businesses, much e-commerce activity (particularly B2C)
is regionally focused. Steinfield and his colleagues further-
more argue that local businesses can develop Web strate-
gies that successfully leverage their local physical pres-
ence (Steinfield et al., 1999; Steinfield & Whitten, 1999).
Thus, firms that leverage their local presence with their
online business strategy may have a competitive advan-
tage over firms with only a virtual presence, for several
reasons. First, embeddedness in preexisting relationships
enhances consumer trust and recognition of online firms.
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Second, integrating online business with local presence
helps serve diverse consumer preferences and shopping
habits and leverage local knowledge. Finally, such firms
can take advantage of an existing infrastructure for deliv-
ering physical goods and services (Steinfield & Whitten,
1999).
Research at the country level also suggests that global
convergence might be taking place in B2B e-commerce
through integration of business processes and systems,
but that B2C e-commerce remains more of a local phe-
nomenon due to national divergence in consumer prefer-
ences and habits (Gibbs et al., 2003). Based on theory and
these empirical findings, we hypothesize that globaliza-
tion has different effects on B2B versus B2C e-commerce
use, with highly global companies engaging more in B2B
and less global companies engaging more in B2C.
H2a. Highly global firms will have higher levels of B2B
e-commerce use. H2b. Highly global firms will have lower
levels of B2C e-commerce use.
Globalization and Firm Performance
We also expect that there will be a direct relationship be-
tween firm globalization and performance. We would ex-
pect highly global firms to perform better in terms of in-
creased efficiency, coordination with trading partners, and
improved market position. It is likely that global firms will
realize greater impacts on performance, because they can
employ resources and capabilities developed throughout
their global operations to improve business processes and
more effectively deploy technologies such as e-commerce
(Bartlett & Ghoshal, 1998). Global firms are also in a better
position to benefit from e-commerce as they can achieve
economies of scale and global reach (Porter, 1986). Fi-
nally, firms with greater global scope are likely to face
greater transaction costs due to their expansion into diverse
geographic regions, and e-commerce use may help reduce
such transaction costs (Garicano & Kaplan, 2001; Malone
et al., 1987). A firm’s global scope has been found to be a
significant predictor of e-commerce value in the financial
services industry (Zhu et al., 2004). Globalization should
also have an indirect effect on performance through the
scope of e-commerce use, since highly global firms will
use e-commerce more extensively, and more extensive use
will result in improved performance. E-commerce use will
thus mediate the effects of globalization on firm perfor-
mance. These direct and indirect effects of globalization
should have additive functions. This leads to our third and
fourth hypotheses.
H3. Highly global firms will experience greater perfor-
mance impacts (in efficiency, coordination, and market posi-
tion) since they began using e-commerce.
H4. Scope of e-commerce use will mediate the impacts
of globalization on performance.
E-Commerce Use and Firm Performance
Use of new information technologies is expected to im-
prove performance, by reducing transaction costs and in-
creasing coordination of activities among business part-
ners (e.g., Malone et al., 1987). E-commerce specifically
(especially B2B) is predicted to result in lower coordina-
tion costs due to automation of transactions online, as well
as productivity and efficiency gains (Amit & Zott, 2001;
Lucking-Reiley & Spulbur, 2001; Wigand & Benjamin,
1995). E-commerce also is expected to facilitate entry into
new markets or extension of existing markets (Garicano
& Kaplan, 2001), and greater integration of systems with
suppliers and customers (Wigand & Benjamin, 1995).
Thus, three dimensions of e-commerce impact on perfor-
mance have been identified in prior research, namely, mar-
ket impacts, efficiency impacts, and coordination impacts
(Kohli & Devaraj, 2003).
Firms can also use IT to help improve the perfor-
mance of different business activities along the value chain
(Porter, 1985), categorized into three dimensions: down-
stream activities such as sales and marketing, customer
service and support, activities internal to the firm such as
production, operations and logistics, and upstream activi-
ties such as information sharing with suppliers (Mahmood
& Soon, 1991). IT use for downstream activities is theo-
rized to lead to greater market impacts, while internal op-
erational use results in greater internal firm efficiency, and
upstream IT use facilitates coordination with suppliers and
business partners (Tallon et al., 2000).
Thus, we would expect that a firm’s e-commerce use
leads to specific types of performance improvements
along these three dimensions. Based on diffusion theory
(Rogers, 1983; Tornatzky & Fleischer, 1990), we propose
that a greater scope of e-commerce use (that is, use of
e-commerce for a greater number of business activities)
will yield greater impacts on firm performance. To illus-
trate, we would expect a firm that uses the Internet for sales
and marketing, for procurement, and to coordinate and
 GLOBALIZATION AND E-COMMERCE
share information with suppliers and customers would see
greater impacts on performance than one that simply has
a web site with marketing information. If this is the case,
then there should be a direct relationship between scope of
use and performance, in terms of increased efficiency, co-
ordination with suppliers and business partners, and sales
and market position. This leads to our fifth hypothesis.
H5. Firms with a greater scope of e-commerce use will
experience greater performance impacts (efficiency, coordi-
nation, and market position).
METHODOLOGY
This article is part of a study of the globalization of
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e-commerce in 10 countries. The research employs a mix
of quantitative and qualitative methods, and levels of anal-
ysis (country, industry, and firm).
Survey Design and Sample
Data were gathered through a telephone survey of 2139 es-
tablishments (defined as a physical location or site that uses
the Internet to buy, sell, or support products and services).
These establishments were located in 10 countries—
Brazil, China, Denmark, France, Germany, Japan, Mexico,
Singapore, Taiwan, and the United States. Data collection
took place from February to April 2002. A stratified ran-
dom sample was used, drawing from company lists rep-
resentative of each local market and stratified by industry
and firm size within each country. Countries were selected
to include developed, newly industrializing, and develop-
ing nations in the three major regions of the world. Es-
tablishments were selected from three major industry sec-
tors known to be more advanced users of e-commerce—
manufacturing, distribution (wholesale and retail), and fi-
nance (banking, insurance, and financial services).
The sample includes 300 establishments in the United
States and approximately 200 in each of the other coun-
tries. It is evenly split by the three industries, and by firm
size, between small (defined as 25 to 249 employees) and
large (defined as 250 or more employees) firms in each
country. Respondents were primarily chief information
officers (CIOs), chief executive officers (CEOs), or infor-
mation systems (IS) managers responsible for making the
firm’s IT-related decisions. The overall response rate was
13%. Response rates varied by country, ranging from 8%
to 39%.1 Table 1 presents the sample profile.
Concepts and Measures
Indices were created for each of the independent and de-
pendent variables and tested for validity and reliability.
Such composite measures are frequently used in social
science research to better measure variables for which
327
no clear and unambiguous single indicators exist (Babbie,
2004). We created indices to measure our study variables
by combining several items into a single measure. We
used an additive method of aggregating items into each
index and then averaging them. Examination of frequen-
cies and correlations indicated that the variables were fairly
normally distributed and that multicollinearity was not a
problem. Standardized z-scores were used for all except
the control variables to ensure that their coefficients were
comparable. Table 2 displays summary statistics (means,
standard deviations, and alphas) for the research variables.
Table 3 contains factor loadings for the three performance
variables, and Table 4 contains interitem correlations for
the firm globalization, e-commerce use, and performance
variables.
Firm Globalization. We conceptualize firm global-
ization as the degree to which firms conduct business
internationally and face international competition. This in-
cludes the extent to which they buy and sell abroad (i.e.,
outside of the establishment’s home country), have op-
erations in multiple countries, and compete with foreign
firms, either in domestic or international markets. We mea-
sure the degree of firm globalization through five items: (1)
whether the company has its headquarters abroad (yes/no);
(2) whether it has other establishments abroad (yes/no); (3)
international sales as a share of the establishment’s total
sales (0–100%); (4) international procurement as a share
of the establishment’s total procurement (0–100%); and
(5) degree to which the establishment is affected by com-
petitors from abroad (5-point Likert scale ranging from 1
= not at all affected to 5 = significantly affected). The
first two items are structural indicators of the location of
the firm’s business activities, and the second two are re-
lated to foreign revenues. The fifth item is exogenous to
the firm, as it relates to the competitive environment in
which the firm does business. We created a Globalization
Index from these five items to measure the level of firm
globalization. Scores for each of the items were standard-
ized by rescaling each to a 0–1 scale and then aggregating
them, such that the index ranges from 0 to 5. A higher
score indicates a greater degree of company globalization.
Reliability analysis confirmed a relatively high alpha of .7
and provided justification for combining these items into
an index of firm globalization.2
E-Commerce Use. We define e-commerce broadly
as use of the Internet to buy, sell, or support products
and services. We conceptualize two dimensions of e-
commerce use,3 measuring (1) the scope of use and (2) the
type of e-commerce use (B2B versus B2C). Both scope and
type of use are categories commonly used in the innova-
tion, IT, and e-commerce literatures (cf. Gibbs & Kraemer,
2004; Xu et al., 2004).
 328 K. L. KRAEMER ET AL.

TABLE 1
Sample profile (n = 2139)

Manufacturing Distribution Finance Total

Industry and firm size 364 357 365 1086

Small firms (25–249)
Large firms (250+) 379 344 330 1053
Total 743 701 695 2139
Industry and globalization
Low global (bottom 25%) 66 140 244 450
High global (top 25%) 212 126 101 439
Total 278 266 345 889
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Respondent job title n %

CEO, president, owner, managing director 76 3.6

CIO, CTO, VP of IS 363 17.0
IS manager, director, planne 759 35.5
Other IS manager 449 21.0
COO, business operations manager 103 4.8
CFO, administration/finance manager 172 8.0
Other (IS analyst, other manager or VP) 217 10.2
Number of employees
25–99 624 29.2
100–199 321 15.0
200–499 733 34.3
500+ 461 21.6

Response rate (%) n %

Country
Brazil 15 200 9.4
China 39 204 9.5
Denmark 18 200 9.4
France 9 201 9.4
Germany 8 202 9.4
Japan 10 227 10.6
Mexico 12 201 9.4
Singapore 27 202 9.4
Taiwan 38 202 9.4
United States 8 300 14.0
Total 13 2139 100.0

We define scope of use as the extent of e-commerce use
for a number of different activities in the value chain, from
advertising and marketing to sales, procurement, service
and support, data exchange with customers and suppliers,
and integration of business processes. It was measured
by an index that was created by aggregating seven items
regarding Internet use for various business activities,
each rated on a yes/no scale. The items are use of the
Internet for: (1) advertising and marketing, (2) online sales,
(3) after-sales customer service and support, (4) online pur-
chases, (5) exchange of operational data with suppliers, (6)
exchange of operational data with business customers, and
(7) formal integration of the same business processes with
suppliers or other business partners. The scope of use is
the total number of these Internet uses, ranging from 0–7.
Type of use is based on a different set of questions that
distinguish between use for business-to-business (B2B)
commerce and business-to-consumer (B2C) commerce.
This distinction is drawn to account for fundamental dif-
ferences in terms of the size and types of transactions
 GLOBALIZATION AND E-COMMERCE 329

TABLE 2
Summary statistics of research variables

Standard Standardized Number

Variables n Mean deviation alpha of items in scale

Firm Globalizationa 1745 1.18 1.16 .70 5

Scope of EC useb 2075 3.26 1.92 — 7
Type of EC use
B2B usec 2124 0.77 0.759 — 2
B2C Usec 2124 0.71 0.769 — 2
Firm performance
Marketd 2006 2.64 0.98 .83 5
Efficiencyd 2052 2.88 1.13 .77 2
Coordinationd 1981 2.42 1.06 .79 3
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Controls
Firm sizee 2006 2.92 0.90 — 1
Industry (mfg.) 2139 0.35 0.48 — 1
Industry (dist.) 2139 0.33 0.47 — 1
Industry (fin.) 2139 0.32 0.47 — 1
a
Score ranges from 0 “low globalization” to 5 “high globalization.”
b
Score ranges from 0 “low EC use” to 7 “high EC use.”
c
Scores range from 0 “no use” to 1 “sales or services use” to 2 “both sales and services use.”
d
Scores are based on a 5-point Likert scale, where 1 is “no impact” and 5 is “great impact.”
e
Score is number of total employees (log-transformed).

involving businesses as opposed to consumers. We created We measured firm performance through a set of 10
a set of indices distinguishing B2B and B2C e-commerce items. These items concerned the degree to which the firm
use by aggregating responses to a different set of items on had experienced the following since using the Internet for
whether the establishment conducts B2B and B2C ecom-
merce sales and services and then dividing responses into
0–2 where 0 is no e-commerce, 1 is either sales or services, TABLE 3
and 2 is both sales and services. We chose this scale to add Factor loadings of firm performance variables
further nuance by distinguishing between e-commerce use
for different activities rather than simple adoption versus Factors
nonadoption. Two variables were created, called “B2B E-
Variables 1 2 3
Commerce Use” and “B2C E-Commerce Use.” The first
variable consists of B2B sales and B2B services, and the Market
second one is comprised of B2C sales and B2C services. Widened sales area .831
Increased sales .748
Increased international sales .665
Firm Performance. We focus on three dimensions of
Improved competitive position .644
performance. The first is operational efficiency, which
Improved customer service .546
refers to more efficient internal processes and greater staff
Coordination
productivity. The second dimension is coordination, which
Decreased procurement costs .845
includes both lower procurement and inventory costs and
Decreased inventory costs .795
improved coordination with suppliers. The third perfor-
Improved coordination with suppliers .641
mance dimension is expansion of the firm’s market, in
Efficiency
terms of increased sales, widened sales area, improved
More efficient internal processes .825
customer service, and competitive position. The specific
Increased staff productivity .774
aspects of performance measured by each of these cate-
gories have been theorized and tested in previous research Note. Principal component analysis with eigenvalues set at 0.96. Fac-
(cf. Mahmood & Soon, 1991; Tallon et al., 2000; Zhu et al., tor entries are varimax rotated loadings. Three-factor solution explained
2004). 69% of variance; n = 1910.
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330
TABLE 4
Intercorrelations among study variables (n = 2139)

Variables 1 2 3 4 5 6 7 8 9 10

1. Firm globalization —
2. Scope of EC use .10∗∗∗ —
Type of EC use
3. B2B Use .17∗∗∗ .45∗∗∗ —
4. B2C Use −.08∗∗ .39∗∗∗ .35∗∗∗ —
Firm performance
5. Market .20∗∗∗ .33∗∗∗ .26∗∗∗ .23∗∗∗ —
6. Efficiency .13∗∗∗ .23∗∗∗ .14∗∗∗ .11∗∗∗ .57∗∗∗ —
7. Coordination .19∗∗∗ .25∗∗∗ .13∗∗∗ .05∗ .58∗∗∗ .53∗∗∗ —
Controls
8. Size (number of employees) .43∗∗∗ .14∗∗∗ .11∗∗∗ .13∗∗∗ .08∗∗∗ .10∗∗∗ .12∗∗∗ — — —
9. Industry (mfg.) .22∗∗∗ −.05∗ .08∗∗ −.21∗∗∗ .00 .00 .07∗∗ −.03
10. Industry (dist.) −.04† −.00 −.03 .03 −.01 −.01 .07∗∗ −.01 −.51∗∗∗
∗∗
11. Industry (fin.) −.18∗∗∗ .05∗ −.04 .18∗∗∗ .01 .01 −.14∗∗∗ .06 −.51∗∗∗ −.48∗∗∗
†p < .10, ∗ p < .05, ∗∗ p < .01, ∗∗∗ p < .001.
 GLOBALIZATION AND E-COMMERCE
business activities: (1) more efficient internal processes,
(2) increased staff productivity, (3) increased sales,
(4) widened sales area, (5) improved customer service,
(6) increased international sales, (7) decreased procure-
ment costs, (8) decreased inventory costs, (9) improved
coordination with suppliers, and (10) improved competi-
tive position. Items were rated on a 5-point Likert scale
ranging from 1 = not at all to 5 = a great deal.
The 10 items were factor analyzed using principal com-
ponent analysis with varimax rotation, with eigenvalues set
at 0.96. The factor analysis identified three factors, con-
firming the dimensions of Efficiency, Market, and Coor-
dination impacts. Factor loadings are reported in Table 3.
All three indices are highly reliable. The Efficiency index
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consists of items 1 and 2 and has an alpha of .77. The Mar-
ket index consists of items 3–6 and 10 and has an alpha of
.83. Finally, the Coordination index consists of items 7–9
and has an alpha of .79.
Control Variables. We also tested for effects of firm
size, industry, and country in our models. Firm size has
been identified in previous research as an important pre-
dictor of IT diffusion and use. Larger organizations have
been found to be more likely to adopt ICTs as they possess
greater resources and knowledge to invest in and imple-
ment technology (Dasgupta et al., 1999; Iacovou et al.,
1995; Kuan & Chau, 2001; Tornatzsky & Fleischer, 1990;
Rogers, 1983). We included firm size in our models to en-
sure that firm globalization was not just a proxy for size.
Firm size was operationalized as the total number of em-
ployees in the organization, log-transformed to reduce data
variance (Raymond, 1990; Zhu et al., 2004).
We also tested for industry effects. E-commerce use and
performance impacts are also likely to vary across indus-
tries. For example, EDI use has been particularly strong
in the manufacturing industry, used to integrate the firm’s
activities with its supply chain. Manufacturing firms are
thus likely to make heavier use of B2B e-commerce to
coordinate activities with their trading partners. Service-
based industries such as retail and finance, on the other
hand, are more likely to do B2C e-commerce with their
customers. We included industry as a control variable in
the models we tested. Due to our interest in examining B2B
and B2C separately, we distinguished between manufac-
turing, which is more business- focused, and distribution
and finance, which require relatively more interaction with
consumers. The industry control variable was measured by
dummy variables for distribution and finance firms, using
manufacturing as the baseline.
A country control variable was also included. Most
prior firm-level studies of EDI and IT use have been con-
ducted in developed countries, and most often in a single
national context. However, recent cross-country studies
have found gross domestic product (GDP) per capita to
331
be the strongest determinant of e-commerce and IT dif-
fusion (Beilock & Dimitrova, 2003; Caselli & Coleman,
2001; Shih et al., in press) and have found significant dif-
ferences in diffusion between countries at different stages
of economic development. For this reason, we included
country dummies as control variables, based on the coun-
try in which the establishment was located. The coun-
try dummies used were Brazil, China, Denmark, France,
Germany, Japan, Mexico, Singapore, and Taiwan. The
United States was used as the baseline.
Descriptive statistics revealed that the highly global
firms in the sample were heavily weighted toward for-
eign manufacturers, as 55% of them were headquartered
abroad and 48% were from the manufacturing industry.
The global firms did an average of 45% of their sales
and 40% of their procurement internationally, compared
to less than 1% each for local firms. Local firms, by con-
trast, were primarily in the finance industry (54%), and
did more business with consumers. Firms in the distri-
bution industry were evenly split between high and low
global, presumably due to the balance between wholesale
and retail in our sample. Although both global and local
firms sold products and services to businesses (92% of
global versus 75% of local firms), significantly more local
firms (75%) sold to consumers compared to global firms
(49%).
RESULTS
Hypotheses were tested using ordinary least squares re-
gression. Models were run for both measures of e-
commerce use—scope of use and type of use (B2B vs.
B2C). Each model examines the combined impacts of
firm globalization and e-commerce use (scope or type) on
firm performance, measured by efficiency, coordination
and market impacts.
All five hypotheses were confirmed. Tables 5, 6 and 7
summarize the results of the regression analyses for both
models. The three regressions in Table 5 and the four re-
gressions in Table 6 show the interrelationships between
globalization, scope of e-commerce use, and the three di-
mensions of firm performance and address H1, H3, H4, and
H5. The five regressions in Table 7 show interrelationships
between globalization, B2B, B2C, and firm performance
and address H2a, H2b, H3, and H5.
H1, that firm globalization would lead to a greater
scope of e-commerce use, was confirmed. Table 6 shows
that more globalized firms tended to have higher scope
of use (b = .13, p < .001), when size, industry, and
country effects were controlled. Independent size, indus-
try, and country effects were also apparent. Larger firms
were likely to have higher e-commerce use (b = .09, p <
.01), and finance firms were also likely to have higher e-
commerce use (b = .09, p < .01). Firms in all countries
 332 K. L. KRAEMER ET AL.

TABLE 5
Regression coefficientsa for globalization and performance model

Variables Efficiency Coordination Market

Firm globalization .129∗∗∗ .095∗∗ .177∗∗∗

Size—total employees .040 .078∗∗ −.005
Industry—distribution .007 .010 .015
Industry—finance .033 −.126∗∗∗ .041
Country—Brazil .045 −.009 −.038
Country—China −.024 .029 .060∗
Country—Denmark −.104∗∗ −.079∗∗ −.134∗∗∗
Country—France −.134∗∗∗ −.134∗∗∗ −.190∗∗∗
Country—Germany −.114∗∗∗ −.091∗∗ −.129∗∗∗
Country—Japan −.073∗ −.115∗∗∗ −.215∗∗∗
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Country—Mexico .027 .058∗ −.031

Country—Singapore −.020 .060† .029
Country—Taiwan −.008 .034 .035
F 7.885 14.570 20.735
Significance .000 .000 .000
df 13 13 13
Std. error 0.974 0.951 0.931
Adj. R2 .05 .10 .13
a
Coefficients are standardized betas.
†p < .10, ∗ p < .05, ∗∗ p < .01, ∗∗∗ p < .001.

TABLE 6
Regression coefficientsa for e-commerce scope of use and performance model

Variables E-commerce scope of use Efficiency Coordination Market

Firm globalization .126∗∗∗ .102∗∗ .063∗ .135∗∗∗

E-commerce scope of use — .217∗∗∗ .253∗∗∗ .331∗∗∗
Size—total employees .085∗∗ .021 .056∗ −.033
Industry—distribution .042 −.002 .000 .001
Industry—finance .087∗∗ .015 −.148∗∗∗ .013
Country—Brazil −.062∗ .059∗ .007 −.018
Country—China −.212∗∗∗ .022 .082∗∗ .130∗∗∗
Country—Denmark −.053† −.093∗∗ −.065∗ −.117∗∗∗
Country—France −.289∗∗∗ −.071∗ −.061∗ −.094∗∗
Country—Germany −.087∗∗ −.095∗∗ −.069∗ −.100∗∗∗
Country—Japan −.208∗∗∗ −.028 −.063∗ −.147∗∗∗
Country—Mexico −.101∗∗∗ .049† .084∗∗ .002
Country—Singapore −.213∗∗∗ .026 .114∗∗∗ .100∗∗
Country—Taiwan −.206∗∗∗ .037 .086∗∗ .103∗∗∗
F 17.181 13.061 22.263 36.570
Significance .000 .000 .000 .000
df 13 14 14 14
Std. error 0.942 0.953 0.921 0.877
Adj. R 2 .11 .09 .15 .23
a
Coefficients are standardized betas.
†p < .10, ∗ p < .05, ∗∗ p < .01, ∗∗∗ p < .001.
 GLOBALIZATION AND E-COMMERCE 333

TABLE 7
Regression coefficientsa for type of use and performance model

Variables B2B use B2C use Efficiency Coordination Market

Firm globalization .143∗∗∗ −.123∗∗∗ .126∗∗∗ .086∗∗ .177∗∗∗

B2B use — — .084∗∗ .087∗∗ .161∗∗∗
B2C use — — .078∗∗ .026 .185∗∗∗
Size—total employees .051† .170∗∗∗ .022 .069∗ −.045†
Industry—distribution −.048† .126∗∗∗ .002 .011 −.001
Industry—Finance −.044 .210∗∗∗ .021 −.127∗∗∗ .010
Country—Brazil −.097∗∗ −.040 .056† .001 −.015
Country—China −.100∗∗ −.074∗ −.010 .039 .090∗∗
Country—Denmark .009 −.022 −.103∗∗ −.079∗∗ −.132∗∗∗
Country—France −.211∗∗∗ −.125∗∗∗ −.107∗∗∗ −.112∗∗∗ −.133∗∗∗
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Country—Germany −.051† −.003 −.109∗∗∗ −.086∗∗ −.120∗∗∗

Country—Japan −.100∗∗ −.072∗∗ −.059∗ −.105∗∗∗ −.186∗∗∗
Country—Mexico −.078∗∗ −.008 .034 .065∗ −.017
Country—Singapore −.130∗∗∗ −.037 −.006 .073∗ .057∗
Country—Taiwan −.042 .011 −.005 .037 .040
F 10.623 12.932 8.906 13.868 30.172
Significance .000 .000 .000 .000 .000
df 13 13 15 15 15
Std. error 0.964 0.956 0.966 0.946 0.890
Adj. R 2 .07 .09 .07 .11 .21
a
Coefficients are standardized betas.
†p < .10, ∗ p < .05, ∗∗ p < .01, ∗∗∗ p < .001.

other than the United States had significantly lower scope
of e-commerce use than firms in the United States.
H2a and H2b address a different e-commerce indicator,
type of use (B2B or B2C). H2a predicted that globalization
would have a positive effect on B2B e-commerce use. As
shown in Table 7, this hypothesis was strongly supported
(b = .14, p < .001). Size and industry had only marginal
effects on B2B use, with large firms likely to adopt more
B2B and distribution firms less likely to adopt it. Firms
from all countries except for Denmark and Taiwan were
significantly less likely to adopt B2B than U.S. firms. Sup-
port for H2b, predicting a negative effect of globalization
on B2C use, was also evident, as higher globalization led to
less B2C e-commerce use (b = −.12, p < .001). A strong
industry effect was also evident with regard to B2C, as
both finance firms (b = .21, p < .001) and distribution
firms (b = .13, p < .001) were much more likely to adopt
B2C e-commerce than manufacturing firms. This effect is
probably explained by the fact that finance and distribution
firms deal with consumers much more often than firms in
the manufacturing industry. Size also had a significant ef-
fect and was a positive predictor of B2C e-commerce use
(b = .17, p < .001). Country effects were less pronounced
for B2C than for B2B use.
H3, that globalization would lead to greater impacts,
was also substantiated. Table 6 shows that, controlling for
the effects of e-commerce use, size, industry, and country,
globalization had a significant positive direct effect on all
three types of performance, efficiency (b = .10, p < .01),
coordination (b =. 06, p < .05), and market (b = .14,
p < .001). Even stronger effects are evident in Table 7,
when controlling for B2B and B2C e-commerce use, as
well as size, industry, and country effects. Size had a pos-
itive association with coordination impacts (b = .06, p <
.05), while finance industry had a negative effect on coor-
dination (b = −.15, p < .001). In general, firms from the
developed countries in Europe and Japan were less likely
to experience performance impacts than U.S. firms, while
firms from developing countries (especially those in Asia)
were more likely to experience improved coordination and
market impacts.
H4, that scope of e-commerce use would act as a me-
diator between globalization and firm performance, was
supported as well. To test for mediation, additional analy-
ses were run regressing the dependent variables (the three
dimensions of firm performance) on globalization and the
two control variables. Results of these regressions are re-
ported in Table 5. According to Baron and Kenny (1986),
 334 K. L. KRAEMER ET AL.
mediation can be established by showing that the effect
of the independent variable on the dependent variable is
less when the mediating variable is included in the re-
gression model than without it. Following their recom-
mendations, we compare the relationship of the depen-
dent variable (performance) to the independent variable
(globalization) with and without the mediating variable
(scope of e-commerce use). Comparing the regression co-
efficients for globalization and all three dimensions of per-
formance in Table 5 (without the mediator) and Table 6
(with the mediator), it is evident that the effects of glob-
alization on each performance dimension are less when
scope of e-commerce use is included in the model. This in-
dicates that scope of e-commerce use somewhat dampens
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the effects of globalization and mediates its relationship
with firm performance.
H5 predicted that scope of use would have a positive
effect on firm performance. This hypothesis was also sup-
ported, as scope of use had strong positive impacts on all
three types of performance. Table 6 indicates that control-
ling for the impacts of firm globalization, size, industry,
and country, scope of use had significant effects on all three
types of impacts: market (b = .33, p < .001), coordination
(b = .25, p < .001), and efficiency (b = .22, p < .001).
In terms of type of use, Table 7 shows that the use of
B2B e-commerce had significant market (b = .16, p <
.001), coordination (b = .09, p < .01) and efficiency b =
.08, p < .01) impacts. Use of B2C had significant posi-
tive market b = .19, p < .001), and efficiency (b = .08,
p < .01) impacts, but no significant relationship to coor-
dination impacts (b = .03, p > .10). Thus H5 was sup-
ported, but with some qualifications: While scope of use
predicted all three dimensions of performance and both
B2B and B2C e-commerce led to market-related impacts
such as increased sales and efficiency-related impacts such
as greater productivity, B2B use was likely to lead to in-
creased coordination, but B2C was not.
DISCUSSION
Each of the five hypotheses was supported by the analy-
sis. The following is a discussion of the findings, including
additional data from chi-square analysis comparing char-
acteristics of “high global” (top 25%) and “low global”
(bottom 25%) segments of the sample. These comparisons
provide a richer and more detailed picture of the data, and
provide a basis for explaining the results.
H1 regarding globalization and scope of e-commerce
use was supported, as firm globalization was a signifi-
cant predictor of scope of use. This is consistent with the
view that global firms face increased pressure to use e-
commerce as a response to international competition and
the operational need to coordinate more effectively across
national borders. Looking specifically at the types of ac-
tivities that global firms conducted on the Internet, we
found that the difference between high global and low
global firms was explained by a particular set of activi-
ties that high global firms were more likely to carry out
online. Figure 2 shows that highly global firms were sig-
nificantly more likely to use the Internet for exchanging
information with customers and suppliers, integrating
business processes, and after sales service and support,
but not for sales, procurement, and marketing. This might
be explained by the fact that business processes of global
companies are more difficult to integrate, and they must
coordinate with more business partners over greater dis-
tances. Thus global firms can reap greater benefits from
using the Internet as a tool for integration and coordination.
Sales and marketing, on the other hand, are more local in
nature, so potential benefits are similar for both global and
local firms.
It is somewhat surprising that there is no difference in
online procurement, as one might expect that global firms
are buying from a more geographically dispersed set of
suppliers and could achieve greater impacts in terms of
reducing procurement costs by utilizing the Internet. One
explanation might be that global firms are more likely to be
already using EDI. If this is the case, they may be using the
Internet in the search and negotiation process, but using
EDI for the actual transaction.
H2a and H2b regarding globalization and type of e-
commerce use were confirmed as well. This supports the
argument that upstream activities, which involve B2B re-
lationships, are more global in nature, while downstream
activities that involve consumer interactions are more lo-
cal or multidomestic (Porter, 1986). B2B e-commerce
can be applied in a standardized way on a global basis
and thus benefits from economies of scale, while B2C e-
commerce requires significant adaptation for each local
environment and therefore might not result in economies
of scale. Instead, local firms may have inherent advantages
over global firms in doing business online with consumers.
These could include better knowledge of consumer prefer-
ences, established brand names, and effective distribution
channels that can be used to support a “click and mortar”
strategy for e-commerce.
These findings are partially explained by industry ef-
fects; namely, the highly global firms tend to be concen-
trated in the manufacturing industry and engage in more
B2B e-commerce in general than low global firms, which
are dominated by finance and do more business with con-
sumers. However, globalization did have significant effects
on B2B and B2C use, over and above the evident indus-
try effects. Globalization also had effects on e-commerce
use that were independent of firm size and country. These
findings suggest that globalization is more than a proxy
for industry or firm size, and that it transcends individual
country effects.
 GLOBALIZATION AND E-COMMERCE
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FIG. 2. Scope of e-commerce use, high vs. low global firms. Note: ∗ p < .05, ∗∗ p < .01, ∗∗∗ p < .001.
Looking at the differences between high and low global
firms at a more detailed level yields additional interesting
findings. As Figure 3 shows, highly global firms were more
likely to engage in both B2B sales and services than low
global firms. But looking at B2C, we find that the two
groups were actually equally likely to engage in B2C sales.
This implies that any advantages or greater motivation lo-
cal firms have in the consumer market do not make a dif-
ference in terms of actually selling online. Instead, the
big difference is in B2C services, which local firms were
significantly more likely to conduct online via their web
sites.
One explanation might be that highly global firms (over
half of which were foreign headquartered) provide fewer
services overall to consumers, and that they are more likely
to outsource the services they do provide in other coun-
tries rather than performing them directly. Global firms
may see less payoff or competitive advantage in providing
online services to consumers. Knowledge of B2C is less
transferable from country to country, and it is expensive to
get local knowledge. Global firms may be deterred from
providing B2C e-commerce services by challenges due to
national differences in language, culture, and regulations,
which may be especially important in the often highly reg-
ulated financial sector. If this is the case, the difference is
335
simply explained by the fact that local firms are more ser-
vice oriented, not that they have a higher proclivity for
providing those services online.
On the other hand, it could be that for any given level of
consumer services, local firms are more likely to provide
them online. The reasons could have to do with better ties
to local supply chain partners. Two examples are product
availability information and order tracking, both of which
are common services offered on B2C web sites. Providing
these services online requires integration with warehouses,
distribution centers, and shipping companies to track in-
ventory and shipment information. This may be easier for
local firms that have well-established relationships with
local partners.
Broadly, the foregoing findings regarding H1 and
H2 confirm previous theories and findings that B2B e-
commerce supports upstream activities and tends to be
more global, whereas B2C supports downstream activities
and tends to be more localized (Globerman et al., 2001;
Porter, 1986), as well as arguments for the advantage of lo-
cal presence for B2C e-commerce in particular (Steinfield
et al., 1999; Steinfield & Whitten, 1999).
The third and fourth hypotheses regarding globaliza-
tion and performance were also supported. The findings
show that global firms enjoyed greater positive impacts
 336 K. L. KRAEMER ET AL.
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FIG. 3. Type of e-commerce use—B2B Vs. B2C, high vs. low global firms. Note: ∗ p < .05, ∗∗ p < .01, ∗∗∗ p < .001.
on firm performance, in terms of efficiency, coordination,
and market impacts. This effect is, however, mediated by
scope of e-commerce use. The fact that e-commerce use
is a mediator means that globalization also has an indi-
rect effect on performance. Globalization leads to higher
levels of e-commerce use, which in turn has positive im-
pacts on performance. Comparing high and low global
firms, Figure 4 shows that highly global firms were more
likely to experience improvements on every item sur-
veyed than low global firms. Differences were significant
for all types of performance, but were most pronounced
regarding increased international sales, improved coordi-
nation with suppliers, and decreased procurement and in-
ventory costs. Globalization thus appears to lead to per-
formance improvements, particularly in terms of increased
coordination.
There are two likely explanations for these differences.
First, global firms may have greater opportunities for per-
formance improvement. This may be because they are
more inefficient and ineffective in each area and have more
room for improvement. On the other hand, their scale and
scope may give them more opportunities to realize ben-
efits from using the Internet than local firms with more
limited scale and scope (Porter, 1986). A second explana-
tion, posited earlier, is that global firms have access to a
larger reservoir of resources and capabilities to draw on
when implementing IT innovations such as the Internet,
and thus have an advantage in effectively deploying the
technology and in making needed process changes to reap
the benefits from use (Bartlett & Ghoshal, 1998). Both
of these possible explanations warrant systematic exami-
nation in future studies, but were beyond the scope of this
research.
The fifth hypothesis regarding e-commerce scope and
performance was supported as well, with important qual-
ifications. E-commerce scope of use was positively asso-
ciated with improved performance. This shows that more
broad-based use of e-commerce (i.e., use of the Internet
for a wider range of activities) results in greater perfor-
mance gains. However, the separate analysis of B2B and
B2C e-commerce reveals that the two different types of
use were linked to different performance dimensions. Both
B2B and B2C use drove market- sand efficiency-related
performance improvements, but B2B use led to greater co-
ordination as well, while B2C use did not. Overall, B2B
use appeared to have more fundamental impacts on firm
performance, as it led to a broader range of improvements
(market position, coordination, and efficiency). The im-
pacts of B2C use were more limited to market position
and efficiency, although it did have a stronger association
with market-related impacts than did B2B use.
Overall, our research findings are in line with theory
suggesting that B2B e-commerce should lead to greater
impacts on upstream activities such as coordination with
suppliers and business partners, while B2C e-commerce
should lead to greater downstream impacts on sales and
market position (Mahmood & Soon, 1991; Porter, 1985,
1986; Tallon et al., 2000). In light of this prior theory, it is
not surprising that B2C e-commerce would not have major
impacts on coordination with suppliers and customers, as
 GLOBALIZATION AND E-COMMERCE
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FIG. 4. Firm performance (% high impact), high vs. low global firms. Note: ∗ p < .05, ∗∗ p < .01, ∗∗∗ p < .001.
sales to consumers do not require coordinating activities
in the same way as do supply-chain activities with busi-
ness partners, which are facilitated by B2B e-commerce.
Although B2B requires upstream coordination between
firms and integration of their information systems and pro-
cesses, B2C involves the downstream relationship between
the firm and the consumer. Thus, it makes sense that B2B
would have an impact on the upstream dimension of coor-
dination (including decreased procurement and inventory
costs and improved coordination with suppliers), but that
B2C would not, as it has greater impacts on downstream
activities such as sales and market position.
However, the findings also suggest that these distinc-
tions are not so neat, as both types of e-commerce use also
yield impacts beyond each of these dimensions. The fact
that B2C e-commerce was associated with efficiency gains
supports arguments that providing services online can lead
to major cost savings: for instance, by eliminating the need
for customer service and technical support staff (Kraemer
et al., 2000; Kraemer & Dedrick, 2002). Online banking is
supposed to reduce the need for customers to visit branches
or use call centers, while online retailing likewise reduces
337
the need for in-store or call center staff. Overall, the great-
est impact from e-commerce use was improved sales and
competitive position, which resulted from use of both B2B
and B2C.
Limitations
Despite the large scale of our study, it is limited in several
ways. First, the results are based on a cross-sectional sur-
vey conducted at one point in time. As such, they cannot
establish causality. We rely on the logical argument that
the process of firm globalization has been occurring longer
than Internet-based e-commerce has been in existence, so
it precedes it chronologically. However, we would argue
that over time, greater e-commerce use in turn leads to
greater firm globalization. Second, due to the methodol-
ogy used, the models in our study explain a low amount of
variance. We chose to focus on the effect of firm global-
ization on e-commerce use and impacts, rather than being
explicitly interested in a range of factors explaining differ-
ent types of impacts. Given the robustness of our estimates,
the results indicate that globalization does have an effect
 338 K. L. KRAEMER ET AL.
on e-commerce use. It also has an impact on performance,
both independently and through the mediating influence
of scope of e-commerce use. Third, our study used sub-
jective measures of firm performance. Although this was
a necessity given the scale and multicountry aspect of the
study, the results would be stronger if objective perfor-
mance measures could have been included, especially if
both types of measures could have been used in order to
examine the correspondence between such measures.
Future cross-country research should rely on some ex-
ternal data on firm performance in addition to perceptual
data when the latter must be used. It should also include
country-level variables such as the evenness of the IT in-
frastructure across the different countries in which each
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firm operates, as well as more extensive indicators of firm
globalization, such as the number of countries or conti-
nents of operation, to better measure global scope. Finally,
longitudinal study of these relationships over time will
help to better assess causality and investigate reverse ef-
fects of the scope of e-commerce use on firm globalization.
CONCLUSIONS AND IMPLICATIONS
This research shows that the relationship between glob-
alization and e-commerce is complex and varied. Among
firms using the Internet to conduct business, global firms
use the technology more extensively across their value
chains, engaging in a wider variety of e-commerce activ-
ities than less global firms. However, when e-commerce
is broken down in terms of the type of business relation-
ship involved, we find a very different picture for B2B
and B2C e-commerce, with global firms more likely to
engage in the former and local firms in the latter. The find-
ings provide empirical support for Porter’s (1986) thesis
that upstream activities, which involve B2B transactions,
are more global in nature, while downstream activities
involving B2C interactions are more local, or multido-
mestic. The empirical findings reinforce qualitative re-
search on e-commerce that suggests that global conver-
gence is occurring in B2B through the coordination and
integration of business processes and operations, but that
B2C remains more of a local phenomenon due to diver-
gence in consumer preferences and habits (Gibbs et al.,
2003).
This study makes an important contribution as the first
study to empirically test relationships between firm global-
ization, B2B and B2C e-commerce, and firm performance,
through a large-scale study across 10 countries and 3 in-
dustries. Our results help refine the literature on IT and
globalization, much of which assumes or argues that IT
use drives globalization or is an inherent part of it. We find
that this is not always the case, as certain typses of IT use
(namely, B2C e-commerce) are actually more localized
than global.
Although globalization has a negative effect on B2C,
firms derive most of their performance benefits from B2B
rather than B2C, so the net effect of globalization seems to
be a positive one on firm performance. Local firms do ap-
pear to be benefiting from e-commerce though, especially
B2C services, which drive increased sales. Global firms get
more performance improvements from e-commerce use
than local firms overall, as they tend to adopt B2B, which
has greater impacts across a broader range (efficiency, co-
ordination, and market) than B2C, which is a driver only
of increased market and efficiency. Global firms also get
more direct impacts from e-commerce, presumably as they
have greater resources and scope to use it better.
Overall, the findings support the notion that e-
commerce is reinforcing rather than transforming exist-
ing commerce patterns. Our major finding is that B2B e-
commerce sales and services tend to be global, while B2C
tends to be local or multidomestic, which matches the pat-
tern hypothesized for upstream and downstream business
activities (Porter, 1986): namely, that global firms (partic-
ularly manufacturing firms) are more likely to do business
with other businesses, while local firms (especially finance
and distribution) are more likely to provide sales and ser-
vices to consumers.
Managerial Implications
The finding that global firms are the ones primarily en-
gaging in B2B—which constitutes the majority of all
e-commerce—implies that e-commerce will reinforce ex-
isting international competitive advantages, rather than
leveling the playing field and enabling local firms to com-
pete with global firms in international markets. Doing busi-
ness across national borders involves more than simply
setting up a web site and offering products or services to
the world. The virtual world of commerce must be sup-
ported with physical, financial, and information processes
that global firms are more likely to already have in place,
and that local firms cannot duplicate easily or cheaply. This
challenges the claims in the popular press and elsewhere
that e-commerce will level the playing field among firms.
For example, Cavusgil (2002, p. 24) proclaimed that “e-
commerce is a great equalizer! It creates a level playing
field between small and large firms, experienced and in-
experienced, and domestic and foreign.” In general, our
findings indicate that e-commerce tends to reinforce ex-
isting advantage rather than equalize advantage between
firms.
On the other hand, these inequalities do not preclude
local firms from participating in e-commerce. In fact, as
Porter and others suggest, local firms may have valuable
resources that put them at a competitive advantage in
their home markets. These include local knowledge, strong
brand names, distribution channels, financial and payment
 GLOBALIZATION AND E-COMMERCE
mechanisms, and customer service infrastructure. These
resources can be an advantage in B2C e-commerce and
are not easy for global firms to replicate in each national
market around the world. Even purely virtual firms such as
Yahoo and eBay partner with local firms in different coun-
tries around the world to provide their products and ser-
vices in local languages with payment in the local currency.
This implies that low global firms can look for opportuni-
ties in local markets rather than trying to use the Internet
to reach far-flung international markets. If these firms do
want to expand globally, they are more likely to do so by
adopting B2B e-commerce to break into the global produc-
tion networks of multinational corporations than by trying
to sell directly to foreign consumers.
Downloaded by [Swinburne University of Technology] at 20:06 06 January 2015
The Internet is still relatively new as a medium for con-
ducting business, having been opened to commercial use
for just over a decade, and its ultimate impacts are still
to be seen. In time, it may have a transformative effect
on many industries, just as earlier innovations such as rail-
roads, electricity, the telephone, and computers have done.
For now, however, the changes are more supportive than
disruptive of existing industry structures and competitive
environments.
NOTES
1. We tested for response bias in our data set because our sample
consists of both IS and non-IS managers and executives, since IS man-
agers may be positively biased when rating the impacts of e-commerce
on firm performance due to their higher level of investment in the tech-
nology. To test for bias, we conducted a comparison of responses by IS
managers versus non-IS managers to determine whether a systematic
difference exists. This comparison was done using a Mann–Whitney U-
test to compare the means across the two groups, and the Kolmogorov–
Smirnov test to examine the hypothesis that the sample distribution of
the IS managers is equal to that of the non-IS managers. The test showed
that there were no statistically significant differences between these two
groups on any of the items except one, “international sales increased.”
Thus we conclude that the responses from the two groups do not differ
significantly in terms of the sample mean and sample distribution.
2. Conceptually, we felt that including both internal and external
measures of firm globalization strengthened the measure by making it
more multidimensional. We also felt that combining the endogenous
and exogenous items into a single measure was appropriate since the
index is more reliable with all five items than excluding the exogenous
international competitive pressure variable (the alpha score without
this item is only .65). In addition, a factor analysis confirmed that the
five items loaded as a single factor.
3. Earlier studies of EDI and e-commerce have mainly studied either
adoption or “intent to adopt.” This was primarily due to the fact that
these studies were conducted early on in the adoption of the technology
and researchers were trying to understand the factors that might lead
to adoption. We focus on firms already using e-commerce, so it is
appropriate for us to study scope and type of use rather than adoption
or intent to adopt.
339
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